The Quiet before the Storm

The US Treasury (Bond) market is ready to submit to the inflation
argument, the gold price is about to reveal a physical shortage of
gold as well as a crumbling global monetary order, the strong dollar
policy is about to have the rug pulled out from underneath it, the
blue chip end of the stock market is now precariously close to the
precipice, and commodity prices appear to be revved up for another
good leg. That is the point we've arrived at but it's really
quite quiet out there.

The Buying Climax
Forget about the managed slowdown hypothesis, or a return of the goldilocks
theme, or a resumption of the new economy. Let's consider the now discredited "V" shaped
recovery.

Why wouldn't last week's Fed inspired Dow Industrials reversal, for
instance, foretell a reversal in fortune for the US economy? Well, first,
the rally itself is not likely a reversal. It was a clear-cut buying
panic in a bear market. A buying panic in a bull market is one thing
- it is usually motivated by the fear of missing out on a good thing.
But that isn't what seemed to occur here, last week.

For one, since it is a bear market the panic buyers were probably the
professional shorts, hedge funds, and fund managers either locking in
profits, preventing an erosion of capital, or liquidating their risk
insurance, respectively. The point being that they were motivated by
the fear of capital loss, not of not making enough of it. Nonetheless,
a panic is a panic, and it is more often followed by reversal than continuity.
Besides, since when does a government intervention, alter the primary
market trend?

Still, what if the market is beginning to discount changing underlying
fundamentals that are already turning bullish for the US economy? Indeed,
what if the economy is picking up momentum now? But where would it come
from? The consumer is showing signs of fatigue, the business sector appears
to be over invested in the wrong places, which might account for the
rapid slow down in capital expenditures that the FOMC refers to in its
last policy statement, and lastly, there must be a drag on the US economy
through trade - due to a strong (expensive) dollar, by this point.

In This Week's Issue:

We discuss 4 possible recovery scenarios but whether recovery arrives
or not, the higher inflation rates will force the Fed to consider a
reversal of policy, which is what the stock market neither wants nor
expects. Accordingly, Goldenbar raises the stakes... forget about 2000,
are you ready for a 3000 point tumble in the Dow Industrials next month?
We are.

Commodity bears got railroaded this month, and it started even before
the surprise rate cut last week. The oil stocks index suggests big
things ahead for oil prices, and oil prices are confirming... meanwhile,
gold prices and the XAU...

Dollar/Yen Bulls have reached their technical objective and now sit
vulnerably at a primary resistance point near a two-year high at 125.
They are overbought, and the focus is now on the fiscal developments
in the US Treasury bond market as well as the Japanese Government bond
market. The latter has been outperforming the former in recent days.

In a critique of recent analysis from the World Gold Council titled, World
Gold Council; Gold in the Official Sector, Issue 15, April
2001, we take issue with their explanation (or lack of one) for higher
lease rates. And to add insult to injury, wait until you read about
Robert Skidelsky's dinner speech at a WGC function in November...
Goldenbar renames the World Gold Council to the World Government
Co-op!

Ed Bugos is a former stockbroker, founder of GoldenBar.com,
one of the original contributing editors to SafeHaven.com and
former editor of the Gold & Options Trader. He continues to publish commentary
on market and economic trends; and provides gold, economic and mining research
to private clients worldwide.

The editor is not a registered advisory and does not give
investment advice. Our comments are an expression of opinion only and should
not be construed in any manner whatsoever as recommendations to buy or sell
a stock, option, future, bond, commodity or any other financial instrument
at any time. While we believe our statements to be true, they always depend
on the reliability of our own credible sources. We recommend that you consult
with a qualified investment advisor, one licensed by appropriate regulatory
agencies in your legal jurisdiction, before making any investment decisions,
and barring that, we encourage you confirm the facts on your own before making
important investment commitments.